Lenders urged to rethink age limits
A shift towards lending into retirement and the introduction of intergenerational mortgages may be essential to easing the UK’s housing affordability challenges, according to participants at a recent roundtable hosted by communications consultancy MRM.
Industry figures at the event discussed the potential for Japanese-style intergenerational mortgages, which allow home loans to be passed from parents to children, to help more people access homeownership. These ultra-long-term mortgages, sometimes extending 50 years or more, would enable monthly repayments to be spread over a longer period, reducing costs for younger buyers.
Data from the Office for National Statistics shows that the average home in England now costs nearly eight times the average salary, compared to four times in 2000, highlighting the scale of the affordability issue.
“The longer-term mortgage idea is very new in the UK, whereas other countries have intergenerational mortgages left as part of people’s estates,” said John Davison (pictured left), head of product, proposition & distribution at Perenna.
“We have a cultural belief that we must pay off all our debt before we die and pass on our property mortgage-free to our children – but I’d rather my parents enjoyed their money and I’ll pay off the remaining mortgage from the property sale when they’re gone. There could be a shift in thinking coming for the new generation.”
While some lenders permit mortgages to continue into retirement, most set an upper age limit — typically between 75 and 80 — by which the loan must be repaid. Claire Cherrington (pictured centre), director of PMS and Bankhall at Sesame Bankhall Group, said increasing these age caps could offer an alternative to renting for some borrowers, with the debt settled by the borrower’s estate after death.
“While later life borrowing may not be the ideal solution for the majority, it could provide a practical solution for those who haven’t amassed equity by retirement,” Cherrington said. “For these people, it could make sense to continue paying a mortgage in retirement instead of renting, especially if you've got a pension that covers it and you can afford it.
“We need to think differently to tackle this and help broader society, as house prices won’t significantly fall or incomes significantly rise faster than inflation, so the affordability challenge remains. But for those generations who are renting and can’t afford to get on the property ladder, looking at different term lengths and structures could give them a chance to avoid renting into retirement and to build wealth. There are, however, still constraints in current regulations that prevent us from thinking differently about how to tackle some of those problems.”
The state pension age, currently 66, is scheduled to rise to 68 by 2044. The International Longevity Centre has suggested that those born after April 1970 may not be eligible until age 71. This trend may require lenders to adapt their products to suit changing work and retirement patterns.
“We already have slightly longer terms for our residential mortgages, but we’ve got an aging population so it doesn’t matter what type of lender you are, you cannot have your eyes closed to the fact that we're going to be working for longer,” said Tanya Elmaz (pictured right), director of intermediary sales at Together.
“Retirement ages keep moving, so by the time some of us retire we might be a bit older, as we’re working longer. So, lenders will need to meet the needs of older customers as well as younger ones in future.”
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